Corruption Of China's Economic Transition And Innovation Of Private Enterprises:A Theoretical And Empirical Study

Although prominent economic achievements have been made since China's reform and opening up;however,the accelerative factors of China's economic growth are basically count on high investment and saving rate rather than effective use of resources and technological innovation.Such status quo makesmany scholars concerned about the sustainability of China's economic growth.In order to transform the economic growth pattern from “factor-driven” into “innovation-driven”,Chinese government has dedicated significant resources and developed relevant policies on encouraging enterprise's innovation.Nevertheless,the microscopic data of enterprises reveals that with the increasing investment on enterprise innovation,its innovation efficiency still remains in a relatively low level.Therefore,what accounts for this inefficiency?In the process of China's reform form traditional planned economy to market economy,private enterprises are more efficient than state-owned ones on innovation.Whereas,because of the state-owned companies have playedthe dominant role in China'sownership structure,private enterprises constantly face the situation on “ownership” policy discrimination during their innovation process and this makes the private enterprises less likely toobtain innovation policy resources(such as government innovative subsidy and preferential taxation)and innovation achievement protection.Many researches indicate that the relationship between government and companies has played a crucial role in allocating China's innovation resources.Those private enterprises with good government relations could acquire more resources and beneficial policies on innovation.Furthermore,due to institutional deficiencies,lacking of fair market competition environment and intellectual property protection system during China's economic transition,this situation leads to both corruption and “rent-seeking”.Under such circumstances,on one hand,corruption could play roles as “greasing money” and “protection money”to become an informal resource allocation and intellectual property protection mechanism that improve private enterprise's innovation in gaining valuable innovation resources and protecting their innovation achievements.On the other hand,corruption may decrease marginal productivity of innovation activities and entrepreneurship rewards and finally inhibit enterprise's innovation.Hence,an issue arises: whatimpacts dose the corruption has on private enterprise's innovation during the economic transition process? With the purpose of giving out an in-depth discussion,this paper conducts a theoretical and empirical study regard to China's economic transition background and arrives at conclusions as following:(1)Based on data that collectfrom listed private enterprises from 2007 to 2014 and took the excess entertainment & travel expenditure as alternative variable to represent corporate corruption expenses,the empirical research reveals that there is an inverted U-shaped relationship between corruption expenditure and innovation investment for private enterprises.Also,such relationship are varied in the change of company size and local institutional environment: such inverted U-shaped relationship between corruption expenditure and innovation investment is mainly generated at in-land area with relatively poor institutional environment;moreover,further study indicates that SMEs' with limited resources and weak propertyrights protection system aremuch more seriously affected.Theseconsequences show that the positive effects of corruption are primarily pose onthe resource effect and property protection effect on SMEs' innovation.(2)Based on China Industry Business Performance Data from 2005 to 2007 of Chinese SMEs',taking the excess management expenditure as alternative variable to represent corporate corruption expenses and using Tobitmodel estimating method to implement empirical analysisin order to figure out differenteffectsthat corruption poses on various industrial area of SMEs;the empirical research reveals that such effects are demonstrated in three different conditions including: significant inverted U-shaped,positive correlated and uncorrelated.The research results show that the impacts of corruption on SMEs' innovation investment are varied in terms of different industrial areas.Meanwhile,such impacts also influenced by industrial barrier,to be specific,the impacts remain limited on those SMEs,which have relatively high industrial barrier;for those industry with middle-level barrier the relevance is inverted U-shaped;for those SMEs in low-level industrial barrier,the impacts are diversified.(3)On account of listed SMEs' data from 2007 to 2014,taking the excess entertainment & travel expenditure as alternative variable to represent corporate corruption expenses and using Tobit and Logitmodel estimating method to implement further analysis on above research thesis,the research indicates that in spite of some positive influences that corruption bring to the private enterprises,the corruption also reduced the conversion efficiency from innovation investment to innovation output,that is just like the “sand” in private enterprises' innovation efficiency.This result shows that although corruption could have positive influence on private enterprises' innovation investment and output,however this positive influence of corruption is to help company to acquire more competitive innovation resources both on quantity and price,which means such augment of innovation output relies on rising investment rather than increasing innovation efficiency.Further study shows that corruption increases private enterprises' excessive innovation investment and such investment can not only decrease the number ofinnovation patents,but also has negative influence on creating three kinds of patents as well.Namely,excessive innovation that caused by corruption is the major cause of reducing private enterprises' innovation efficiency.In the last part of the research,this paper proposed a conclusion for the study and provided some inspiration for the development of anti-corruption and enterprises' innovation enhancement policies.In addition,this thesis also analyzes the research gaps of this study and brings forward the future research direction on this topic.